When there is a tax sale of real estate in Alabama, and the bidding exceeds the taxes due on the property, who gets the "surplus funds" or "excess funds?" The owner of the property at the time of the tax sale is entitled to the surplus funds. It could be many tens of thousands of dollars. The owner simply applies to the county for the money, provides his/her identity, and receives the money. Yes, there is a drawback. If that same person later attempts to redeem their property from the tax sale, they will have to repay the surplus funds as part of the redemption price. For some people, that is not a problem. They have no intention of redeeming, or they desperately need the cash NOW and will worry about redemption later. A lot of tax sale investors actively seek out such people and partner with them to claim the surplus funds. That could all change very soon. It is because of a lawsuit in Tuscaloosa in which a borrower did not pay his mortgage, and also did not pay his taxes. The tax sale generated over $30,000 in surplus funds. Slightly over a month later, the bank foreclosed on the property. The bank learned about the tax sale, attempted to redeem, and learned at that time about the surplus funds. The owner/borrower, and the bank, both claimed the surplus funds. The owner said he was entitled to the money, under the statutes. The bank had two arguments why they should get the money. (1) Because of how mortgages technically work in Alabama, the bank was technically the owner of the property as soon as it was mortgaged, so they were the "owner" entitled to the money under the statute; and (2) It wasn't fair that their borrower should get over $30,000 in cash, and the bank should be stuck with having to spend an additional $30,000 to redeem the property in order to protect their foreclosure rights. The court said to the bank: "(1) Nice try, but that technicality doesn't matter in this situation and (2) You banks are big boys, if you wanted to protect yourself against unfair results, you could have easily put something in your mortgage, but you didn't, so too bad." (I'm paraphrasing, of course!) Now the bankers are trying to get the law changed. They are pushing for a change to the law, so that the surplus funds can be claimed only by the party who redeems. In the Tuscaloosa case mentioned above, I think that would have been a fair result. BUT, what if there is no mortgage on the property AND the owner does not want to redeem for some reason, or intends to redeem later, but needs the money RIGHT NOW, what happens then? Well, under the proposed law, nobody ever claims the money because nobody ever redeems, and the county gets to just keep it. Pennies from heaven. Under the proposed law, it's too bad for that owner. That is an unfair result, in my mind. We should not allow bankers to push through legal changes to protect themselves, without giving any thought to bad consequences in situations in which no banks are involved. Please talk to your state legislators, and tell them they should revise the proposed law so that if there are no mortgages or other liens on the property at the time of the tax sale, then the owner can claim the surplus funds, whether he/she redeems or not.
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